Foreign Buying of U.S. Assets Plunges on Europe Optimism

ECB President Mario Draghi has called the euro “irreversible” and said the new government bond purchasing program will have effective conditionality attached. Photographer: Andrew Harrer/Bloomberg

Nov. 16 (Bloomberg) -- International purchases of U.S.
financial assets plunged 96 percent in September as confidence
grew that Europe was beginning to solve its debt crisis and
investors sold Treasuries following the Federal Reserve’s
quantitative easing announcement.

Net buying of long-term equities, notes and bonds totaled
$3.3 billion during the month, down from net purchases of $90.3
billion in August, the Treasury Department said today in
Washington. Economists surveyed by Bloomberg projected net
buying of $50 billion of long-term assets, according to the
median estimate.

The Federal Open Market Committee said Sept. 13 that it
would undertake a third round of quantitative easing by
purchasing mortgage-backed securities at a pace of $40 billion
per month until labor markets improve substantially.

“QE3 certainly played its role in basically encouraging
people to take risk and to some extent to short the dollar,”
Sebastien Galy, a senior foreign-exchange strategist at Societe
Generale SA in New York, said. “The risk appetite was pretty
strong overall, there were better places to park your money than
the dollar,” and “there was a big rise in optimism regarding
the euro zone.”

Unlimited Buying

European Central Bank policy makers on Sept. 6 agreed to an
unlimited sovereign bond buying program to wrest control of
interest rates in the euro area and to stem the crisis in the
region. ECB President Mario Draghi has called the euro
“irreversible” and said the new government bond purchasing
program will have effective conditionality attached.

Including short-term securities such as stock swaps,
foreigners bought a net $4.7 billion in September, down from net
purchases of $63.5 billion the previous month, the Treasury
said.

China remained the biggest foreign owner of U.S. Treasuries
in September after its holdings rose $300 million to $1.16
trillion, according to the Treasury.

Japan, the second-largest holder of U.S. Treasuries
increased its holdings in September by $7.9 billion to $1.13
trillion, the highest on record, according to the Treasury.

Hong Kong, which is counted separately from China,
decreased its holding by $6 billion to $135.7 billion.

Foreigners sold a net $17.3 billion of Treasuries in
September, according to today’s report.

Estimates of foreign purchases of long-term U.S. assets in
September ranged from net buying of $40 billion to $50 billion,
according to five economists surveyed by Bloomberg before the
report.

The Treasury Department’s data capture international
purchases of government notes and bonds, stocks, corporate debt
and securities issued by U.S. agencies.